Video 5:30
Resource Boom or Bust

Louisa RebgetzUpdated
Tue 16 Aug 2011, 12:30 PM AEST

Louisa Rebgetz talks with author Paul Cleary about his contention that the resources boom, which seems a blessing, could become a curse.

Transcript

LOUISA REBGETZ, PRESENTER: Australia has often been labelled the lucky country. But do we have too much luck - more than we know what to do with. That's the contention of Australian National University researcher and author Paul Cleary who says the resource boom, which seems a blessing, could well become a curse. I spoke with him earlier today. Paul Cleary welcome to the program.

PAUL CLEARY, AUTHOR: Thank you.

LOUISA REBGETZ: How could anyone see this recource boom which is providing so much wealth for a nation in a time of economic uncertainty as a curse?

PAUL CLEARY, AUTHOR: Well it is true that mining I think in the past has done great things for Australia and I think in recent years we have seen a lot of growth out of mining but it simply is the case that you can have too much of a good thing and if you look around the world there are many examples of countries where resource wealth has become a curse. We have had countries that have had this sudden surge in their prosperity that hasn't been well managed and I think Australia, the problem we have is that we don't have good policies in place to really manage this prosperity for the long-term. We've had this sudden surge in activity - really quite unhinged development, hundreds of billions of dollars being sunk into new projects which is really sucking money away from the rest of the economy. We have the exchange rate going through the roof and as a result of that other sectors like tourism, export education, export manufacturing really being hit hard.

LOUISA REBGETZ: So what aren't we doing?

PAUL CLEARY, AUTHOR: What we don't do, I don't bellieve we tax effectively. The reason why we've got this, a sense of a wild west resources stampede is that our taxes are actually quite low. The deal negotiated by Prime Minister Gillard still gives the multinationals a tax rate of just 35 percent. Norway, a country which I think has the best policies in the world, is taxing these non-renewable resources at 70 percent - because the resources are finite I think you do have to have higher tax and the other thing we're not doing is we're not putting some money away for when the boom ends or for when the resources run out and this is what other countries, Chile, Norway, even tiny East Timor, we can learn from them because they've got very good policies in place and we've got nothing like that.

LOUISA REBGETZ: So the resource rent tax which is coming in soon or proposed to come in soon is not good enough, is that what you're saying?

PAUL CLEARY, AUTHOR: Look it really does very little. In fact what it does, it's quite perverse - it gives the mature companies, the Rio-Tintos, the BHPs, a very similar tax rate, really they're not going to pay much more but the small start-up Australian operators are actually going to pay about 49 percent tax. So it's really quite skewed towards undermining new investment and then we have royalties still in place which are not very good for startup operations so this new tax is not giong to do very much and that is why we've got an absolute tsunami of investment coming our way. Australia, I say in my book, is really the sweet spot for developing resourcers because we're a nice safe developed country, we've got a democracy in place - good institutions but we don't tax the way we should - the way other first world country's like Norway do.

LOUISA REBGETZ: So what's the fear then when this resource boom ends if we haven't taxed appropriately?

PAUL CLEARY, AUTHOR: Well I really believe what will happen is we'll get to the end of our resource wealth which I've discovered will be a lot sooner than most people think. The official figures produced by the Government don't take into account the ramping up of production that we're seeing right now. The government claims we have 63 years of gas but they don't factor in the contracts already signed to triple production over the next 10 years and to quadruple it over the next 20 years so I believe resources are going to run out much faster, and when they do we won't have the big sovereign wealth fund that country's like Chile, Norway and East Timor are putting in place. In the space of 15 years Norway has already built up six billion dollars in assets - it's a country of less than 5 million people, that amount will probably double over the next seven or 10 years and keep doubling.

LOUISA REBGETZ: In Darwin there's a lot of talk on the Inpex gas project, a lot of people are waiting for it to happen and the talk is mainly focused on the positives - the jobs, business opportunities and development. What impact will Inpex have on Darwin?

PAUL CLEARY, AUTHOR: Well I think already in Darwin with the previous developments you've had, it is a case of a two speed economy - you've got the resources sector going very strongly but then you've got tourism, hit by the high dollar, and you've have had quite a strong increase in prices, rents and that sort of thing. Really Darwin is becoming a very costly place to live and this is an example of the resource curse - that you get this development and if it's not managed well then it just causes a lot of inflation. Now if you're a business that's directly or indirectly related to the resources sector then you're doing really well and you'll be able to offset those increased costs. But if you're not you're paying more for your rent, you're paying more to lease your premises and all those other costs go up and it really does hit low income earners as well. I think the government here actually has really seen the writing on the wall and they've done some good things. I think the meium and high density developments they're putting in place are a good thing because you actually want to get that benefit and spread it around. You don't want to have what happens in a lot of places is the enclave - so the worker camp next to the mine which I think can already happen here and around the country so the idea is you do want to develop ahead of time so that you can really lock in those benefits and not have that high inflation.